The first 100 days: 7 things that should be top of the in-tray for government

The first 100 days: 7 things that should be top of the in-tray for government

1. Bring work on the advice/guidance boundary to a conclusion, so people can get relevant support with their finances.
2. Ensure tax incentives are designed to generate the right behaviours.
3. Get to grips with workplace pensions.
4. Help the self-employed with their retirement plans.
5. Address the state pension.
6. Implement auto-enrolment reforms.
7. Encourage pension investment in UK businesses.

Sarah Coles, head of personal finance, Hargreaves Lansdown:

“If Labour gets the keys to Number 11, they’ll need to hit the ground running. They might be exhausted after the relentless campaign, but they can’t afford to rest for a second. The first 100 days of any leadership is considered crucial in setting the direction of the government and making real and lasting changes, so they need to get cracking on key policy changes on day one.

If the Conservatives lead the government, it will be vital to stake the claim of a newly invigorated party with a new mandate, and with plenty in the in-tray, it’s vital they don’t overlook essential opportunities.

1. Bring work on the advice/guidance boundary to a conclusion, so people can get relevant support with their finances.

Right now, firms can provide guidance, but they can’t personalise it, or use it to drive people towards specific outcomes, without it being classified as advice. Once it enters this territory, it needs to conform to rules that end up pricing most people out of the market. 

So far, in the review of the boundary between guidance and advice, the FCA and Treasury proposed a new category of targeted support, so providers could make recommendations based on what ‘people like you’ should do. This would make the information more useful, without crossing the line into advice. A new government has the opportunity to accelerate this process to a conclusion.

2. Ensure tax incentives are designed to generate the right behaviours

Tax tinkering will always be a temptation for any government, and could become even more so if they don’t get the growth they need to avoid a squeeze on government finances towards the end of the parliament. However, unless it’s designed with people’s needs at the centre, it runs the risk of putting people off doing the right thing for them and their finances in the long term. Whoever wins the election needs to ensure the tax system supports the behaviours that make the most sense for individuals, and produce the best outcomes.

Any tax reform also needs to have simplicity at its core. People shouldn’t feel they need to pay a tax expert to help them understand how the money they’re saving today will be treated when they draw it in retirement.”

Helen Morrissey, head of retirement analysis, Hargreaves Lansdown:

3. Get to grips properly with workplace pensions

“Labour has pledged a much-needed review of pensions, to ensure the system works well for everyone. We can expect a further move towards consolidation of workplace schemes, and want to see more movement on the development of the Lifetime Pension. This could help solve the lost pension problem, by allowing people to keep the pension provider of their choice throughout their career. It’s a move that will do much to stoke competition in the market and help people engage with their pensions.

The pension tax system will also need to be reviewed. Labour’s decision to step back from reintroducing the Lifetime Allowance was welcomed, but more needs to be done. Over the years, constant tinkering has led to a complex system that can make it hard to plan long term. An overarching review needs to look at the system as a whole and make sure people are properly incentivised to save without fear of being tripped up by tax changes further down the line.

The Conservatives haven’t pledged a review, but it would provide a vital opportunity to improve retirement outcomes for millions of people.

4. Help the self-employed with their retirement plans

The self-employed have been a forgotten group when it comes to pensions. They aren’t included in auto-enrolment and so many miss out on pension saving. Added to this, the prospect of tying money up in a pension until the age of 55 can act as a deterrent, given the volatile earning patterns that might be experienced. This means the self-employed really lack financial resilience when it comes to retirement, with HL’s latest Savings and Resilience Barometer showing only 23% of self-employed households are on track for a moderate retirement income.

Reforms to Lifetime ISA regime could be particularly useful to this group. You can save up to £4,000 per year into a LISA and get a 25% government bonus. This acts in a similar way to basic rate tax relief on a pension with any income taken tax free. LISA savings can also be accessed early if needed, subject to a 25% exit penalty. This can be very useful during times when earnings are fluctuating, but the issue is that the 25% penalty not only removes the government bonus but also a slice of your savings too. We are calling on government to reduce this penalty to 20% to prevent this from happening. We would also like to see the ages at which you can access a LISA increase from age 40 to 55, as this would cover those who become self-employed later in life. Our research shows that around 1.2m households with a self-employed person paying basic rate tax could be helped by these changes.

5. Address the state pension

Both Labour and the Conservatives pledged to keep the triple lock, but that doesn’t mean the state pension will remain untouched. An ageing population had led to a burgeoning state pension bill and the government needs to be wary of not placing too much of a burden on the shoulders of an already pressurised working population. With life expectancy slowing and healthy life expectancy hovering around age 63, the government will find its hands tied in terms of future boosts to state pension age. Ideally state pension needs to be part of any pension review, to put it on a long-term sustainable footing that gives people certainty of what they will get and when.

6. Implement auto-enrolment reforms

The auto-enrolment extension Bill got Royal Assent last year but, as yet, we’ve seen no timetable for its implementation. These changes have the ability to really boost pension savings by enabling people to start saving at 18, with contributions coming from the first pound of earnings. The timing of these changes is all important, as if they had been introduced during the cost-of-living crisis we could have seen people’s already stretched budgets placed under increasing pressure. However, as the pressure starts to ease, now could be a good time to put a timetable in place.

7. Encourage pension investment in UK businesses

The question of how to get pension schemes investing in UK businesses has been a major discussion point in recent years. It’s a move that has the potential to boost the economy, along with people’s pension pots, with the Conservatives claiming it could boost people’s retirement income by as much as £1,000 per year. Rachel Reeves has also championed the idea and it made the Labour manifesto, so we can expect movement on this in the near future, whatever the outcome of the election.